Bankruptcy is not an easy solution for your debt and credit problems. A bankruptcy will stain your credit report for up to 10 years, and it will impact your ability to rent an apartment, become approved for a mortgage, or get an auto loan. That said, even if you do receive credit approval, you can expect a higher interest rate than normal. Bankruptcy attorneys provide a valuable service for those who need it. However, the best course of action is to avoid bankruptcy altogether.
When Should You File for Bankruptcy?
While you should actively work to avoid bankruptcy, it is important to stay on top of your financial situation. Do not wait until a creditor repossesses your automobile or files legal action. As much as it is possible, you want to stay in control. Take a close look at your income and assets. Do you have more debt than you could possibly pay back? Have you started using one credit card to pay another? Are debt collectors sending letters, making calls, or knocking on your door? Are you having trouble just making minimum payments on your credit cards? Good people do go through hard times. If you would like to avoid bankruptcy, today's guide will help.
Ways You Can Avoid Bankruptcy
In today's world, living in debt just seems to be the way of life. But, there is often a lot of shame and guilt when a person finds themselves filing for bankruptcy. You can get past it. Nevertheless, if you don't give up, there are often ways to avoid bankruptcy. The key is looking past the crisis so that you can see the alternatives.
1. Necessities First - In any plan to get out of debt, you want to make sure you are taking care of your necessities, such as food, shelter, clothing, and transportation. Before you pay anyone anything, make sure that you are satisfying your basic living expenses. Ensure your mortgage or rent is up to date, your utilities are current, and there is food in the house. Your basic needs are the most important.
2. Create a Budget - It is extremely important to know where all your money is going. There are many examples of people who make enough to pay their bills, but their money just flows through their fingers like water. A budget will also help you segment wants from needs. All that said, while creating and sticking to a budget will help keep you from overspending, it is also the only way to know where you are financially.
3. Lifestyle Changes - If you find yourself having difficulties paying your bills, it is time to change your living standards and go no frills. If you are serious about avoiding a bankruptcy, it will mean going out to eat less often, driving a less expensive car, and maybe even downsizing your home. At the end of every month, you should have "extra" money that can be set aside to cover unexpected repairs and expenses, save for retirement, or otherwise help create a financial cushion.
4. Sell Everything - Over most people's lives, they will accumulate a lot of stuff. In your home, there are probably clothes, electronics, tools, furniture, toys, and other items that you do not need. Simply, get rid of it all. Today, it is easier than ever to sell things that you don't need. There are websites like eBay, but even Facebook has a feature that allows you to sell used items. Use the money you make to catch up on your bills and pay down your debt.
5. A Second Job - Over the last 15 years, we have become accustomed to the term "underemployed" and it is not unusual for a person to have a second or third job. Regrettably, this means sacrificing valuable time with family and friends. But, this situation will not last forever and the outcome will be well worth the effort. Regardless, use the money earned from a second job to pay off your debt, and nothing else.
6. Negotiate with Creditors - This is likely the final step before filing bankruptcy. There are many banks and credit companies who would rather work with you than potentially take a 100 percent loss. Yet, negotiating your debt is not without consequences. Creditors can report the debt as either "Paid Not According to Terms" or a "Settled", depending on the specifics. But, the overall impact on your credit is less than a bankruptcy.
Do you have questions? What haven't we covered yet that is important to you? If you would like to talk about avoiding bankruptcy, or a related topic, please contact us.